Decision-Time – The 2025 UK Trade Policy Stocktake

Delivering an EU reset amid the tumult likely to follow the re-election of President Trump makes 2025 a year when the UK government must make trade policy decisions. For business confidence that will ultimately drive growth, there is a need to set a realistic approach and then deliver on it.

Most obviously, shaping negotiations with Brussels will determine what can be achieved with the EU in this Parliament. For the US, the question is how much will need to be offered to the new administration to avoid significant fall-out. More broadly, since Brexit there has been no coherent trade policy offer supporting investment in the UK as a place from which to export while balancing different policy areas including migration and the net-zero transition. That simply can’t be achieved by a government which thinks everything is a secret – strategy and delivery has to be a partnership.

A slow start for a new government

There has been some progress. At a headline level Ministers have stated they support open trade with highest priority given to the neighbourhood. That is different, and has been matched with a far friendlier approach to the EU institutions. Damping suspicions among partners and stakeholders about over-eagerness for a US FTA has also been helpful. Some of the worst excesses of secrecy have been eased.

Equally, stakeholders have been frustrated by lack of urgency. In particular the government didn’t take the opportunity, now diminished, to show a demonstrably different approach in the first 100 days. This could for example have come in adopting a more consultative approach, making a bold statement such as regulatory alignment with the EU, delivering a strong independent oversight body in a Board of Trade, or joining the WTO appellate body replacement the Multi-Party Interim Appeal Arbitration Arrangement (MPIA).

To be fair, the UK equally hasn’t joined in the protectionist impulses against Chinese Electric Vehicles, a likely example of inaction as the right policy. But failing to use a political honeymoon for any potentially difficult decisions meant sticking with previous approaches that have in general failed to deliver growing trade, and have seen stakeholders smiling politely but highly critical in private.

Hopes that a trade strategy would be a significant milestone have been fading as Ministers have signalled a focus on small business exports, a Board of Trade of business leaders, and new Free Trade Agreements – very much like their predecessors. That said, there is an awareness by some inside the machine that it cannot just be more of the same, one long-term official for example talked of a ‘muscle-memory’ of secrecy that was slowly being relaxed, where the departure of the previous Chief Negotiator Crawford Falconer may help. What seems most likely is that publication during the first half of the year is the start rather than end of developing a more mature approach.

Key relationships for 2025

An early test for Ministers may come in relatively advanced Free Trade Agreement negotiations with the Gulf Cooperation Council. Any economic benefit probably rests more on inward investment than enhanced exports, wherein lies the greatest potential issue. Trade union and civil society groups can be expected to raise concerns anyway but these will be amplified if a deal includes Investor State Dispute Settlement provisions. That wouldn’t stop approval, but as with the unbalanced UK-Australia FTA signed in December 2021 would cast a shadow over further activity. At the moment however the previous government playbook is being followed, of not discussing the major issues while proclaiming export opportunities.

Other FTA talks are less advanced, in particular hopes of swift progress with India have predictably dwindled away. More puzzlingly, talks with Switzerland don’t appear to have evolved to recognise the greater opportunities that would be available from an ambitious agenda with the EU. Among the most obvious of these are Mutual Recognition Agreements and joining the Pan-Euro-Med convention on Rules of Origin. Swiss and EU officials share puzzlement over the lack of joined-up UK thinking to date.

Virtually all UK Ministers, Labour MPs, and businesses would prioritise the EU relationship above others. Despite warm words there has so far been only stumbling progress as the two sides revert to ingrained habits, of suspicion on the EU side and secrecy from the UK. There is a rough agenda taking shape that starts with a defence and security agreement that includes economic security cooperation, and then develops further into the trade space with talks over a veterinary agreement, youth mobility, linkage of Emission Trading Schemes, and various cooperation.

These should be taken forward in a summit during the first half of 2025, but there is going to need to be some very heavy lifting all round for significant progress to be made. In particular the biggest problems of the UK approach to youth mobility and EU to SPS lie within their own administrations. Against such difficulties talk of changing UK red lines on customs union or single market can only be a distraction, since there’s no way either the UK or EU will be ready to take the relationship further if it can’t first be normalised.

President Trump’s second term will increase nervousness in the UK-EU relationship. While US interest in using Brexit as an opportunity for a regulatory competition has waned there are bound to be threats of tariffs, hostility in other areas such as with regard to Carbon Border Adjustment Mechanism charges, and suggestions of special deals. In London Labour will come under pressure from opposition parties for a traditional trade deal with the US notwithstanding the limited gains and well-known problem areas.

US pressure on the UK is probably likelier with regard to trade ties with China, not least given an early planned visit by the UK Chancellor to Beijing. There have been long-running tensions within the UK government over China policy which a proposed ‘audit’ won’t resolve, between those prioritising security against economics. In such circumstances managing the UK’s external relations is likely to require the skilled direction and judgement that has rarely been in evidence since 2016.

Implementation, review and the wider agenda

Focus on individual deals with specific countries may be traditional trade policy, but it is increasingly dated given the realities of globalisation. What governments need to provide is a broadly predictable policy framework that supports a country’s international economic strengths allowing stakeholders to operate accordingly. Visa policy and regulatory approach are almost certainly more important to the UK than any individual international engagement – yet neither may feature in the trade strategy.

To take a practical example, the UK is steadily losing participation in Europe’s industrial supply chains, but becoming more focused on services such as the development of artificial intelligence. That is related to regulatory decisions about the EU, where alignment for goods would encourage involvement, but the UK is able to gain more from divergence in services. This also reflects what major companies think of comparative advantage, which is that the UK is better placed for services.

Such focus has rarely been apparent in UK policy making, where for example the EU’s General Product Safety Regulation affecting small exporters seems to have come as a surprise. That’s part of a wider problem in which implementation or expansion of existing trade relationships is treated as a lesser priority. This is something which a trade strategy may be able to address, but only if the government is able to make choices about targets which hasn’t generally happened. With accession to the CPTPP having been confirmed it will be worth watching whether this makes any significant change to UK trade, with the probability that this is rather marginal.

This year will also see UK trade policy reviewed at the WTO, an opportunity for other members to raise awkward questions. There’s likely to be criticisms across many areas, though comparatively to many members the UK is not showing overt signs of protectionism. When discussing the UK’s trade policy globally one tends to be greeted with a shrug, as a country that broadly doesn’t matter too much at a time of great turbulence.

In some ways, the last eight years of UK trade policy shows the limits of government action in the modern international economy. Despite significant barriers being erected, most trade continues as before. Companies are making their own decisions, with large ones better able to weather whatever politics raises. In general they are though investing less in a UK unable to tell a coherent story. No new agreements have made any significant impact set against this larger failing.

Perhaps then that is the real test of the UK government is 2025, as to whether any of its trade policy actions will be material in changing economic performance. Deeper engagement with the EU probably offers the only opportunity for this, but it won’t be just or even mostly about the contents of agreements. Rather, the UK government needs to set a realistic direction, publicly, and work with stakeholders to follow through in words and deeds. That’s a tough but just about plausible ask.